RBI Restricts Bank Loans Against Gold

The Reserve Bank of India on 27th May, 2013 imposed restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs and mutual funds to curb demands for gold.

Also banks were asked to ensure that the amount of loan to any customer against gold ornaments, gold jewellery and gold coins ( weighing up to 50 grams ) should be within the board approved limit.

Banks are currently permitted to grant advances against gold ornaments and other jewellery and against specially minted gold coins sold by banks. However, no advances can be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds.

Government has taken several steps recently, including raising import duty, to curb the inbound shipments of gold. RBI too had put restrictions on banks on gold imports, which has led to forex outflow and widening of the Current Account Deficit.

While there may not be any objection to grant of advances against specially minted gold coins sold by banks, there is a risk that some of these will weigh much more, thereby circumventing the RBI’s guidelines regarding restrictions on grant of advance against gold bullion.

In a separate notification, RBI stated that no advances should be granted by NBFCs for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold ETF and units of gold Mutual Funds.